Inflation and the Changing Nature of Firm Price Adjustment: Six Decades Worth of Evidence

Robert A. Buckle (), Michael Ryan () and Zhongchen Song ()
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Robert A. Buckle: Victoria University of Wellington
Michael Ryan: University of Waikato, https://www.waikato.ac.nz/about/faculties-schools/management/
Zhongchen Song: Reserve Bank of New Zealand

Working Papers in Economics from University of Waikato

Abstract: The frequency with which firms change prices crucially influences inflation dynamics. Using a unique firm-level dataset spanning more than six decades, this paper examines how firm price-setting behaviour has evolved across episodes of high inflation, including the recent COVID-19 inflation episode. Time-series analysis and probit modelling reveal that pricing behaviour has changed markedly since the high inflation episodes of the 1970s and 1980s. In the aggregate, the proportion of firms changing prices has become more highly correlated with inflation. At a firm level, the probability of price increases, conditional on inflation and cost increases, has risen. At the same time, the probability of price decreases when costs fall has fallen, making price adjustment increasingly asymmetric. This asymmetry is particularly pronounced among service-sector firms and at higher inflation levels. Reasons for these changes are evaluated including technological and societal changes, as well as the changing industrial structure of firms. Collectively, the findings imply that the Phillips Curve has become more nonlinear at higher levels of inflation and that the inflation accelerator operates more strongly than in the past.

Keywords: Price change frequency; Inflation and price asymmetry; micro firm data; probit modelling (search for similar items in EconPapers)
JEL-codes: D4 E31 E52 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2025-12-05
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:25/06

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